Coty Inc. has shared its results for the first quarter of fiscal year 2023, ended September 30, 2022.
 
Coty’s Q1 sales performance was well ahead of the underlying beauty market, putting Coty amongst the best in its competitive set. Q1 sales increased 1% as reported including over 7% of FX headwinds, with sales up 9% on a LFL basis, which includes approximately 200 bps of negative impact from the Russia business exit. As a result, LFL sales growth surpassed the company’s upwardly-revised guidance, which called for +8-9% LFL growth adjusting for the impact of the Russia exit.
 
During the quarter, consumer demand for beauty products, particularly prestige fragrances, remained robust, with estimated sell-out in Coty’s Prestige division growing in the low double digits. This performance is ahead of the estimated sell-out in Coty’s Consumer Beauty division growing in the mid-to-high single digits.
 
At the same time, the company delivered strong LFL growth across both divisions, with Prestige growth constrained due to industry-wide supply-chain pressures which were exacerbated by strong fragrance demand which has surpassed expectations, the impact of the company’s exit from Russia and launch phasing.
 
Commenting on the operating results, Sue Y. Nabi, Coty’s CEO, said: “Our strong Q1 results, in the midst of a complex external environment including ongoing component shortages, confirm the strength and resilience of Coty’s brands, teams, strategy and operating model. This represents the ninth consecutive quarter of Coty reporting results in-line to ahead of expectations. The progress we continue to make should be evident across all key financial KPIs, from sales to gross margins and adjusted EBITDA to our deleveraging progress.

Business Segments

Coty’s Prestige business maintained its strong momentum in Q1, supported by a robust fragrance market and Coty’s leading innovation. Q1 Prestige revenues declined 1% as reported and grew 7% LFL, which included approximately 300 bps of negative impact from Coty’s exit from Russia.
 
The growth in Prestige sales was also constrained by industry-wide fragrance component shortages as well as difficult growth comparisons in the prior year when Coty shipped several blockbuster launches.
 
In Q1 Coty continued its track record of launching successful fragrance innovations, with the recently launched Gucci Flora Gorgeous Jasmine building on the momentum of last year’s top-selling Gucci Flora Gorgeous Gardenia, elevating the Flora franchise to Top 10 in North America and Europe. Similarly, the launch of Burberry Hero EDP built on the success of Burberry Hero EDT, driving the Hero franchise to Top 10 in the U.S. and the highest market share for Burberry in the UK. The company continued to expand its footprint on – and off-line across its three prestige cosmetics brands, even as the periodic lockdowns in China weighed on Coty’s prestige cosmetics sales. Meanwhile, Coty continued to build momentum in its Lancaster skincare brand, with over 20% growth vs. the prior year period, in anticipation of its key brand initiatives in second half FY23.
 
Coty’s Consumer Beauty business delivered strong Q1 results, supported by sustained market share momentum and strong activity. Consumer Beauty Q1 revenues grew 5% as reported and 12% LFL.
 
While revenue growth in cosmetics and mass fragrances was broadly in-line to ahead of sell-out, the division was boosted by a strong launch pipeline and brand initiatives in its bodycare business, including adidas’ Skin & Mind premium and sustainable bodycare range, Monange’s silicone-free deodorant, and Bozzano’s clinical range. During the quarter, the global mass beauty category grew at a moderate pace, while Coty continued to outperform the market and expand its market share on a global basis, marking 10 consecutive months of gains.
 
Geographically, revenues grew in all regions on a constant currency basis. EMEA sales declined 3% as reported but grew 11% LFL fueled by significant Travel Retail momentum and double-digit growth across most markets. Americas saw strong momentum in Brazil and Latin America, while the continued strength in U.S. demand was counter-balanced by supply constraints. Asia Pacific grew 6% as reported and 12% LFL, with strong momentum in Asia-ex-China and Travel Retail, while China revenues returned to growth YoY.

Outlook

Coty continues to see strong demand growth across nearly all markets, particularly in Prestige fragrances, with Coty maintaining strong launch activity in both Prestige and Consumer Beauty. At the same time, this robust demand is contributing to component shortages, which remain the primary limitation to near-term growth. The company remains confident in its FY23 outlook, which is in line with its medium-term growth algorithm.
 
Coty continues to expect FY23 revenues for the core business, adjusting for the impact of the Russia exit, to grow 6-8% LFL. The exit from Russia is estimated to negatively impact FY23 sales by approximately 2%. Based on current exchange rates, the company anticipates FX headwinds on FY23 revenues of 6-8%.